Ah your 20s, what a time to be alive am I right? There is so much joy and so many adventure that your 20s bring, but it also brings a boat load of responsibilities…especially when it comes to money. Establishing good money habits now can set you up for success for years to come. With that set, not having good money habits can have negatively impact you later on in life. So, if you want to set yourself up for success, here are 7 essential money habits to start in your 20s that will help you establish a good foundation. Your 20s went by in the blink of an eye? Not to worry, it’s never too late to start a creating good money habits.
Create a Budget
If you’re just starting to really pay attention to money and your spending, creating a budget is a great place to start when it comes to building good money habits. By setting specific amounts for spending categories like rent, groceries, utilizes and going out, you won’t be as likely to overspend.
When your create your budget, take a look at your expenses over the last few months to get an idea of your spending habits and go from there. You’ll get an idea of the average amount of money you spend in different categories and can create a budget that way.
Pay Off Your Debt
If you’re a young twenty something or a recent grad, you may feel like you have so much time to start paying off debt so why start today? Wrong! Paying off debt, whether it’s student loans or credit card debt, or anything else, should be a priority. Depending on your interest rate, you will owe more and more money the longer you hold on to debt. To pay off your debt, establish a strict payment plan and stick with it. You can start by dedicating a percentage of every paycheck toward paying off debt. The higher percentage you put towards paying off your debt, the faster it will get paid off.
To learn more about exactly how to pay off your debt, read this post from finance guru Dave Ramsey. He breaks down the options and explains the exact steps to follow to be debt free. Lastly, once you’re debt free…try to stay debt free!
Track Your Expenses
Tracking your expenses helps you to see where your money is actually going. A $5 coffee and $10 lunch a few days a week may not seem like much, but it can add up quickly over a month time frame. Not only will tracking expenses help you see where every dollar is going, but it will also give you some insight on where you can cut back on. You may find that you’re paying for too many subscription services or spending too much on clothes or home decor (guilty 🙋🏼♀️).
There are a ton of helpful apps out there to help track your spending. They are great because you really have no excuse to slack off since you pretty much always have your phone on you. Some popular ones are Mint, Goodbudget and Honeydue, a money management app for couples.
Establish an Emergency Fund
I’m sure you’ve learned by now that life is unpredictable. Whether it’s an unexpected trip to the ER, your heat going out in the dead of winter, your car needing new brakes, etc., life happens and it’s good to be financially prepared for life’s curveballs.
The goal with an emergency fund is to have somewhere from 3-6 months of expenses saved and not to be touched until necessary. We’re talking you lost your job and need to pay rent necessary not you feel like talking a weekend getaway with friends necessary. However, if you’re in the process of paying of debt (excluding your mortgage), start by trying to save $1,000 in your emergency fund and continue to build from there once your debt is paid off.
I know trying to build an emergency fund sounds like a challenge. But it’s so worth it to have that money there for you to use if/when the time comes. Some tips to help build your emergency fund include contributing a certain percentage of each paycheck or finding a side job to help build that find more quickly. I also like to take whatever I get back from taxes and dump it right into my emergency fund. Lastly, here are some simple and easy tips for saving money if you’re looking for way to cut back on spending so you can increase your emergency savings.
Start Saving for the Future
Retirement feels so far away, doesn’t it? It feels like you just started to make decent money at your job and now you’re hiding it all away for years down the line. I know it doesn’t sound amazing right now, but your future self will thank you BIG TIME.
Fidelity recommends saving 15% of your pre-tax income for retirement. This may seem like a lot, but if you have a typical job your employer may match a certain percentage of your contribution which can be included in that 15% you are putting towards retirement. That money from your employer is basically like free money, so make sure that it something you look in to.
Also, when it comes to saving for retirement, the sooner you start saving the more time your money has to grow in investments. So, even if you can’t contribute 15% right away, contributing something is better than not contributing at all. And, by starting to save early, you will establish essential money habits in regards to long term savings that can also help you save for bigger purchases like a home.
Educate Yourself About Money
If you’re reading this blog post then you can already check this one off the list so yay you! Just simply taking the time to learn more about money is a major step forward in establishing good money habits. There is so much to learn out there when it comes to managing money, and unfortunately it isn’t something we are taught a lot about in school. Luckily, there are so many amazing resources out there to help you understand money like a pro. YouTube and Podcasts are some of my favorite ways to educate myself about money, but you can also dive into to books if you learn better by reading,
Understand That Money Doesn’t Have to be a Competition
Regardless if you’re in your twenties or not, understanding this simple point is a great money habit to go by. If you spend all your money trying to compete with those around you to always have the latest technology, the trendiest clothes or the most extravagant vacations, you’ll just be burning a bigger and bigger hole in your pocket.
Learn and accept that it’s okay if you’re friends make more money than you and you don’t have to keep up with anyone. The sooner you learn this the better off you’ll be and the better off your relationship with money will be.
To build on the 7 essential money habits, check out:
- Money Mistakes to Avoid as a Millennial
- 10 Cheap Date Night Ideas You Will Actually Enjoy
- Simple and Easy Tips for Saving Money
